Mortgages for limited companies

Arranging a buy-to-let mortgage through a limited company is relatively simple and can save you money.

Avatar

By

Matthew Boyle

Updated

Fact checked
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
If you arrange a buy-to-let mortgage through a limited company, you’ll pay different taxes.

Often, it can prove far more affordable to do this. In some situations, it might boost your chances of being approved for a mortgage too.

If you don’t have a limited company, you can set one up specifically for the purpose of buying buy-to-let properties. The process of creating this Special Purpose Vehicle (SPV) company is called “incorporating”. Many lenders actually prefer you do this, instead of using an existing trading company.

Buy-to-let mortgages made available to limited companies tend to have higher interest rates, compared to deals for individuals. There may also be a higher arrangement fee attached.

However, as these types of mortgages are becoming more popular, lenders are dropping their rates in an effort to capture more of this market.

What are the criteria for a company buy-to-let mortgage?

If you’re eligible for a buy-to-let mortgage as an individual, you’re eligible to incorporate.

You can either ask your accountant to create an SPV company for you or do it yourself via the UK government website. It’ll take you a few minutes and cost around £15.

In order to buy properties through an SPV, you’ll need to ensure it has:

  • A suitable SIC code for letting property.
  • No future revenue other than via letting property.

Explaining SPV limited companies

For the purposes of mortgage applications, an SPV company is one that doesn’t have any income. It only exists for the purposes of holding property.

Because the company makes no revenue, lenders will assess your affordability purely on you (the director) as an individual. For this reason, you can apply for a mortgage through an SPV as soon as your company launches.

Lenders prefer offering mortgages to SPVs, because it’s easier to assess the risk compared to trading companies.

There’s essentially no difference to applying for a buy-to-let mortgage as an SPV or an individual, other than the taxes you pay.

Buy-to-let for existing limited companies

It is possible to apply for a buy-to-let mortgage through an existing company that trades in another field, although there are fewer lenders willing to consider this.

It’s more complicated for lenders, because they’ll need to consider the past financial performance of your company, as well as its directors as individuals.

If you’re paying yourself a low salary, but your business has been performing well, this could work in your favour. However, you’ll need to prepare a wealth of financial information for lenders to be comfortable approving your mortgage application.

It’s still possible for owners of trading companies to set up a separate SPV for buy-to-let properties. The pros and cons of doing this are based on your individual circumstances and always worth discussing with a qualified accountant.

Whether you buy through a trading company or an SPV, you’ll need to sign a personal guarantee, stating that you’ll be personally responsible for the mortgage debt if the company goes bust.

What taxes will I pay on mortgages for public companies?

Here are the main things you need to know about the tax differences between limited companies and individuals.
  • Stamp duty. You’ll pay stamp duty at the same rate as individual buy-to-let investors, even on the first property your company buys.
  • Corporation tax. Instead of paying income tax on income from your properties, you’ll pay corporation tax on profits. This is likely to be at a lower rate (in 2018/19, corporation tax stands at 19%).
  • Tax breaks on mortgage interest. When you buy property as a limited company, mortgage interest can be accounted as a business expense, therefore reducing the total amount of taxable profit. This is particularly useful, when you remember you’re now paying tax on profit, not income.

Should I sell properties I already own to my limited company?

If you sell properties you already own to your limited company, you’re likely to be subjected to these additional costs.
  • Stamp duty – owed by your company when it buys the property.
  • Capital gains tax – owed by you as an individual when selling the property.
  • Early repayment charges – owed by you as an individual if you remain tied into your existing mortgage.
  • Mortgage fees – owed by your company on your new buy-to-let mortgage.
  • Additional solicitor fees – as you’ll need an additional solicitor to arrange your personal guarantee.

As such, switching properties may not be financially viable for you, even if it means paying less tax in the ongoing future. It’s best to discuss your options with a qualified accountant.

Pros and cons of arranging a mortgage through a limited company.

Pros

  • You may pay less tax.
  • They are easy to set up.
  • You could be approved for a mortgage in spite of a low personal income if your trading company business is performing well.

Cons

  • They have higher interest rates and fees.
  • It’s costly to add existing properties to your company portfolio.
  • It could be harder to be approved for a mortgage through a trading company if your trading company isn’t performing well.

Bottom line

The financial benefits of incorporating aren’t crystal clear. It’s often recommended to seek the advice of an accountant before making any decision.

The additional fees often put off small-time property investors from incorporating, especially if they’re not investing for the long-term.

However, if you’re planning on building a large portfolio of properties for long-term gains, incorporating could be a particularly viable strategy for you.

We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you. Most of the data in Finder's comparison tables has the source: Moneyfacts Group PLC. In other cases, Finder has sourced data directly from providers.

More guides on Finder

Go to site